2016 (7) TMI 922 - HC - Income Tax

High Court allows deductions for agricultural credit society under Section 80P(2)

The Commissioner of Income Tax Versus M/s. Veerakeralam Primary Agricultural Co-operative Credit Society

The High Court ruled in favor of the assessee, a primary agricultural credit society, allowing deductions under Section 80P(2) of the Income Tax Act. The ... Benefit under Section 80P denied - assessee is primarily engaged in lending loans for non agricultural purposes - Held that:- In the recent decision in the case of Chirakkal Service Co-operative Bank Ltd., Kannur vs. the Commissioner of Income Tax, (2016 (4) TMI 826 - KERALA HIGH COURT ), the High Court considered similar substantial questions of law as held that the assessee is a primary agricultural society, the Kerala High Court has answered the substantial question of law in favour of the assessee and held that the primary agricultural credit societies, registered as such under the KCS Act and classified so under that Act, including the appellants, are entitled to such exemption. Therefore, the aforesaid decisions is applicable to the instant case. Thus we are of the view, that the substantial question of law framed in the instant appeals, is answered against the Revenue. The exception barred out in Section 80P (4) of the Income Tax Act, 1961, is applicable to the assessee credit society. Hence, the appeals are accordingly dismissed. - Decided in favour of assessee Issues involved:1. Whether the assessee, primarily engaged in lending loans for non-agricultural purposes, is entitled to deduction under Section 80P(2) of the Income Tax Act.2. Whether the assessee’s claim for deduction is restricted by Section 80P(4) of the Income Tax Act.Detailed Analysis:Issue 1: Deduction under Section 80P(2) of the Income Tax ActThe assessee, Veerakeralam Primary Agricultural Co-operative Credit Society, filed returns for the assessment years 2008-09, 2009-10, and 2010-11, claiming deductions under Section 80P(2) of the Income Tax Act. The Assessing Officer (AO) denied this deduction, asserting that the assessee, though a primary agricultural credit society, was carrying on the business of banking, making it ineligible for the deduction. The AO classified the interest income from investments as taxable under 'Income from other sources' rather than under banking business, citing the case of M/s. Totgar’s Cooperative Sale Society Limited vs. ITO. The assessee argued that it was engaged in providing financial assistance to its members for agricultural purposes, and its status as a primary agricultural credit society was affirmed by audit reports. The Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal (ITAT) ruled in favor of the assessee, stating that the society's activities did not fall under the definition of a co-operative bank as per the Banking Regulation Act, 1949, and thus the deduction under Section 80P(2)(a)(i) was allowed.Issue 2: Restriction by Section 80P(4) of the Income Tax ActSection 80P(4) was introduced by the Finance Act, 2006, effective from 01.04.2007, denying deductions to co-operative banks but not to primary agricultural credit societies. The AO argued that the assessee, being a co-operative bank, was ineligible for the deduction. However, the assessee contended that it was a primary agricultural credit society as defined under Section 5(cciv) of the Banking Regulation Act, 1949, providing financial assistance only to its members and not accepting deposits from the public. The appellate authorities found that the assessee did not fall under the definition of a co-operative bank but was a credit co-operative society, thus eligible for the deduction. The Tribunal also referenced similar cases, including ACIT vs. Bangalore Commercial Transport Credit Co-operative Society Limited and CIT vs. Jafari Momin Vikas Co-op. Credit Society Ltd., supporting the assessee's position.Judgment:The High Court dismissed the Revenue's appeals, affirming that the assessee was not a co-operative bank but a primary agricultural credit society, thus entitled to the deduction under Section 80P(2). The court referenced the Kerala High Court's decision in Chirakkal Service Co-operative Bank Ltd. vs. Commissioner of Income Tax, which supported the assessee's eligibility for the deduction. The substantial questions of law were answered against the Revenue, and the appeals were dismissed with no order as to costs.